Q: Is Facebook overvalued or a great company?
A: Yes–to both.
Facebook met expectations last week during its first official earnings call, but investors continue to take the stock down to all-time lows. 28 percent growth is great but not enough to justify the extra special great valuation the company is valued at. Look for Facebook to be trading at 15 by the end of the year, unless it can show huge growth in mobile (a possibility, given the social network’s increased willingness to expand on the platform) or land a sleeper hit with their ad exchange FBX.
The threat that wasn’t
If Facebook were a VP candidate at a debate: “Senator, I knew Google, Google was a friend of mine. Senator, you’re no Google.” Google grew 21 percent year-over-year this year and trades at, what feels like a reasonable 5x revenues—and that’s off a base of $40 billion. This compared to Facebook, which last week was trading at 15x revenues. If Facebook traded at Apple and Google’s valuation, based on Wall Street’s current estimate for Facebook’s 2013 earnings ($0.60), for example, it would trade at $6-$7 (see graph below).
Revenge of the Nerds: why making and building stuff is the shit again.
In the ‘60s and ‘70s, most CEOs cut their teeth in the finance departments, where they assembled then disassembled monsters (e.g., ITT, AMF) made from the parts of lesser monsters. Decades later, in the 1990s, all worshiped at the altar of Brand (era of the intangible) with Phil Knight and Howard Schultz making us aspire to be something better with a waffle trainer or a latte. Even Intel stuck a marketer in the corner office. Of late, people who make and build stuff are back in the C-suite. Ross Levinsohn, being thrown overboard for Marissa Mayer at Yahoo! is the most recent high-profile example. Levinsohn, the likable media sales guy, found himself up against Mayer, the workaholic engineer. 10 years ago, someone with Mayer’s background and experience would have reported to someone who reported to someone who claimed they had regular 7-minute meetings with the CEO. Today, she is the CEO. It’s likely in the near future that MIT, Berkeley or Stanford will replace Harvard as the world’s top finishing school for future CEOs.
Further down the food chain, look for Manhattan private schools to cancel one or two of the 12 classes in Mandarin they are offering Upper East Side pre-schoolers and replace them with Semantic mark-up in HTML Courses.